##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2009
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from   to
 Commission File Number: 001-34211
 
 GRAND CANYON EDUCATION, INC.
 (Exact name of registrant as specified in its charter)
 
 DELAWARE(State or other jurisdiction of 
Incorporation or organization)
    
    20-3356009(I.R.S. Employer
Identification No.)
 3300 W. Camelback Road
Phoenix, Arizona 85017  (Address, including zip code, of principal executive offices)
 (602) 639-7500
(Registrants telephone number, including area code)
 þ o
 Yes
o No o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 Yes o No þ




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##### 



GRAND CANYON EDUCATION, INC.
FORM 10-Q
INDEX
 PagePART I  FINANCIAL INFORMATION
    
    
    3Item 1 Financial Statements
    
    
    3Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11Item 3 Quantitative and Qualitative Disclosures About Market Risk
    
    
    18Item 4 Controls and Procedures
    
    
    19PART II  OTHER INFORMATION
    
    
    19Item 1 Legal Proceedings
    
    
    19Item 1A Risk Factors
    
    
    20Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    20Item 3 Defaults Upon Senior Securities
    
    
    20Item 4 Submission of Matters to a Vote of Security Holders
    
    
    20Item 5 Other Information
    
    
    20Item 6 Exhibits
    
    
    20SIGNATURES
    
    
    21Exhibit 10.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 GRAND CANYON EDUCATION, INC.
Statements of Operations
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(In thousands, except per share amounts)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Net revenue
    
    $
    66,084
    
    
    $
    39,351
    
    
    $
    184,448
    
    
    $
    109,626Costs and expenses:Instructional costs and services
    
    
    23,466
    
    
    
    12,967
    
    
    
    61,845
    
    
    
    36,995Selling and promotional, including $1,928 and $1,398
for the three months ended September 30, 2009 and
2008, respectively, and $5,319 and $4,323 for the
nine months ended September 30, 2009 and 2008,
respectively, to related parties
    
    
    22,095
    
    
    
    18,562
    
    
    
    62,396
    
    
    
    46,035General and administrative
    
    
    8,556
    
    
    
    5,032
    
    
    
    26,077
    
    
    
    15,992Estimated litigation loss
    
    
    5,200
    
    
    
    
    
    
    
    5,200
    
    
    
    Royalty to former owner
    
    
    74
    
    
    
    124
    
    
    
    222
    
    
    
    1,612Total costs and expenses
    
    
    59,391
    
    
    
    36,685
    
    
    
    155,740
    
    
    
    100,634Operating income
    
    
    6,693
    
    
    
    2,666
    
    
    
    28,708
    
    
    
    8,992Interest expense
    
    
    (276
    )
    
    
    (649
    )
    
    
    (1,363
    )
    
    
    (2,156
    )Interest income
    
    
    43
    
    
    
    76
    
    
    
    272
    
    
    
    508Income before income taxes
    
    
    6,460
    
    
    
    2,093
    
    
    
    27,617
    
    
    
    7,344Income tax expense
    
    
    2,969
    
    
    
    841
    
    
    
    11,408
    
    
    
    2,868Net income
    
    
    3,491
    
    
    
    1,252
    
    
    
    16,209
    
    
    
    4,476Preferred dividends
    
    
    
    
    
    
    (270
    )
    
    
    
    
    
    
    (791
    )Net income available to common stockholders
    
    $
    3,491
    
    
    $
    982
    
    
    $
    16,209
    
    
    $
    3,685Net income per common share:Basic
    
    $
    0.08
    
    
    $
    0.05
    
    
    $
    0.36
    
    
    $
    0.19Diluted
    
    $
    0.08
    
    
    $
    0.03
    
    
    $
    0.36
    
    
    $
    0.11Shares used in computing net income per common share:Basic
    
    
    44,783
    
    
    
    19,219
    
    
    
    45,032
    
    
    
    19,133Diluted
    
    
    45,099
    
    
    
    30,970
    
    
    
    45,322
    
    
    
    32,097
 The accompanying notes are an integral part of these financial statements.
  3




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##### Table of Contents



GRAND CANYON EDUCATION, INC.
Balance Sheets
 September 30,
    
    
    December 31,(In thousands, except share data)
    
    2009
    
    
    2008(Unaudited)ASSETS:Current assetsCash and cash equivalents
    
    $
    73,670
    
    
    $
    35,152Restricted cash and cash equivalents and investments (of which $171 is
unrestricted at September 30, 2009)
    
    
    3,844
    
    
    
    2,197Accounts receivable, net of allowance for doubtful accounts of $5,232 and $6,356
at September 30, 2009 and December 31, 2008, respectively
    
    
    15,577
    
    
    
    9,442Income taxes receivable
    
    
    414
    
    
    
    1,576Deferred income taxes
    
    
    4,952
    
    
    
    2,603Other current assets
    
    
    2,623
    
    
    
    2,629Total current assets
    
    
    101,080
    
    
    
    53,599Property and equipment, net
    
    
    63,425
    
    
    
    41,399Restricted cash and investments (of which $2,928 is restricted at December 31, 2008)
    
    
    360
    
    
    
    3,403Prepaid royalties
    
    
    7,494
    
    
    
    8,043Goodwill
    
    
    2,941
    
    
    
    2,941Deferred income taxes
    
    
    7,752
    
    
    
    7,404Other assets
    
    
    556
    
    
    
    201Total assets
    
    $
    183,608
    
    
    $
    116,990LIABILITIES AND STOCKHOLDERS EQUITY:Current liabilitiesAccounts payable
    
    $
    10,512
    
    
    $
    5,770Accrued liabilities
    
    
    18,358
    
    
    
    9,674Accrued estimated litigation loss
    
    
    5,200
    
    
    
    Income taxes payable
    
    
    386
    
    
    
    172Deferred revenue and student deposits
    
    
    42,595
    
    
    
    14,262Due to related parties
    
    
    3,110
    
    
    
    1,197Current portion of capital lease obligations
    
    
    776
    
    
    
    1,125Current portion of notes payable
    
    
    2,101
    
    
    
    357Total current liabilities
    
    
    83,038
    
    
    
    32,557Capital lease obligations, less current portion
    
    
    1,041
    
    
    
    29,384Notes payable, less current portion and other
    
    
    26,040
    
    
    
    1,459Total liabilities
    
    
    110,119
    
    
    
    63,400Commitments and contingenciesStockholders equityPreferred stock, $0.01 par value, 10,000,000 shares authorized; 0 shares issued and
outstanding at September 30, 2009 and December 31, 2008
    
    
    
    
    
    
    Common stock, $0.01 par value, 100,000,000 shares authorized; 45,613,794 and
45,465,160 shares issued and outstanding at September 30, 2009 and December 31,
2008, respectively
    
    
    456
    
    
    
    455Additional paid-in capital
    
    
    68,670
    
    
    
    64,808Accumulated other comprehensive (loss) income
    
    
    (157
    )
    
    
    16Accumulated earnings (deficit)
    
    
    4,520
    
    
    
    (11,689
    )Total stockholders equity
    
    
    73,489
    
    
    
    53,590Total liabilities and stockholders equity
    
    $
    183,608
    
    
    $
    116,990
 The accompanying notes are an integral part of these financial statements.
  4




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GRAND CANYON EDUCATION, INC.
Statement of Stockholders Equity
(In thousands, except share data)
 (Unaudited)
 AccumulatedAdditional
    
    
    Other
    
    
    AccumulatedCommon Stock
    
    
    Paid-in
    
    
    Comprehensive
    
    
    EarningsShares
    
    
    Par Value
    
    
    Capital
    
    
    Income
    
    
    (Deficit)
    
    
    TotalBalance at December 31,
2008
    
    
    45,465,160
    
    
    $
    455
    
    
    $
    64,808
    
    
    $
    16
    
    
    $
    (11,689
    )
    
    $
    53,590Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,209
    
    
    
    16,209Unrealized loss on
hedging derivatives, net
of taxes of $122
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (180
    )
    
    
    
    
    
    
    (180
    )Unrealized gains on
available for-sale
securities, net of taxes
of $5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    7Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,036Share-based compensation
    
    
    
    
    
    
    
    
    
    
    2,439
    
    
    
    
    
    
    
    
    
    
    
    2,439Exercise of stock options
    
    
    57,982
    
    
    
    
    
    
    
    696
    
    
    
    
    
    
    
    
    
    
    
    696Excess tax benefits from
share-based compensation
    
    
    
    
    
    
    
    
    
    
    335
    
    
    
    
    
    
    
    
    
    
    
    335Repurchase and
retirement of the
Companys common stock
    
    
    (909,348
    )
    
    
    (9
    )
    
    
    (14,486
    )
    
    
    
    
    
    
    
    
    
    
    (14,495
    )Issuance of shares of
the Companys common
stock, net of issuance
costs
    
    
    1,000,000
    
    
    
    10
    
    
    
    14,878
    
    
    
    
    
    
    
    
    
    
    
    14,888Balance at September 30,
2009
    
    
    45,613,794
    
    
    $
    456
    
    
    $
    68,670
    
    
    $
    (157
    )
    
    $
    4,520
    
    
    $
    73,489
 The accompanying notes are an integral part of these financial statements.
  5




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GRAND CANYON EDUCATION, INC.
Statements of Cash Flows
(Unaudited)
 Nine Months Ended September 30,(In thousands)
    
    2009
    
    
    2008Cash flows provided by operating activities:Net income
    
    $
    16,209
    
    
    $
    4,476Adjustments to reconcile net income to net cash provided by operating activities:Share-based compensation
    
    
    2,439
    
    
    
    Excess tax benefits from share-based compensation
    
    
    (64
    )
    
    
    Amortization of debt issuance costs
    
    
    36
    
    
    
    Provision for bad debts
    
    
    9,931
    
    
    
    5,301Depreciation and amortization
    
    
    5,782
    
    
    
    3,676Estimated litigation loss
    
    
    5,200
    
    
    
    Deferred income taxes
    
    
    (2,575
    )
    
    
    (3,227
    )Other
    
    
    (14
    )
    
    
    (106
    )Changes in assets and liabilities:Accounts receivable
    
    
    (16,066
    )
    
    
    (8,284
    )Prepaid expenses and other
    
    
    827
    
    
    
    (316
    )Due to/from related parties
    
    
    1,913
    
    
    
    1,650Accounts payable
    
    
    4,240
    
    
    
    105Accrued liabilities
    
    
    8,909
    
    
    
    6,000Income taxes receivable/payable
    
    
    1,711
    
    
    
    3,805Deposit with former owner
    
    
    
    
    
    
    3,000Royalty payable to former owner
    
    
    
    
    
    
    (5,920
    )Prepaid royalties to former owner
    
    
    
    
    
    
    (7,428
    )Deferred revenue and student deposits
    
    
    28,333
    
    
    
    15,214Net cash provided by operating activities
    
    
    66,811
    
    
    
    17,946Cash flows used in investing activities:Capital expenditures
    
    
    (18,881
    )
    
    
    (5,821
    )Purchase of campus land and buildings
    
    
    (35,505
    )
    
    
    Change in restricted cash and cash equivalents
    
    
    1,403
    
    
    
    1,083Purchases of investments
    
    
    
    
    
    
    (2,620
    )Proceeds from sale or maturity of investments
    
    
    
    
    
    
    2,570Net cash used in investing activities
    
    
    (52,983
    )
    
    
    (4,788
    )Cash flows provided by (used in) financing activities:Principal payments on notes payable and capital lease obligations
    
    
    (1,693
    )
    
    
    (1,165
    )Proceeds from debt
    
    
    25,547
    
    
    
    Debt issuance costs
    
    
    (317
    )
    
    
    Repurchase of common shares
    
    
    (14,495
    )
    
    
    Repayment on line of credit
    
    
    
    
    
    
    (6,000
    )Proceeds from related party payable on preferred stock
    
    
    
    
    
    
    5,725Repurchase of Institute Warrant
    
    
    
    
    
    
    (6,000
    )Repurchase of Institute Note Payable
    
    
    
    
    
    
    (1,250
    )Amount paid related to initial public offering
    
    
    
    
    
    
    (4,368
    )Net proceeds from issuance of common stock
    
    
    14,888
    
    
    
    Excess tax benefits from share-based compensation
    
    
    64
    
    
    
    Net proceeds from exercise of stock options
    
    
    696
    
    
    
    Net cash provided by (used in) financing activities
    
    
    24,690
    
    
    
    (13,058
    )Net increase in cash and cash equivalents
    
    
    38,518
    
    
    
    100Cash and cash equivalents, beginning of period
    
    
    35,152
    
    
    
    18,930Cash and cash equivalents, end of period
    
    $
    73,670
    
    
    $
    19,030Supplemental disclosure of cash flow informationCash paid for interest
    
    $
    1,546
    
    
    $
    3,019Cash paid for income taxes
    
    $
    11,980
    
    
    $
    2,169Supplemental disclosure of non-cash investing and financing activitiesPurchase of equipment through notes payable and capital lease obligations
    
    $
    2,116
    
    
    $
    2,481Purchases of property and equipment included in accounts payable and deferred rent
    
    $
    763
    
    
    $
    194Settlement of capital lease obligation
    
    $
    30,020
    
    
    $
    Tax benefit of Spirit warrant intangible
    
    $
    271
    
    
    $
    Deferred tax on repurchase of institute warrant
    
    $
    
    
    
    $
    2,316Value assigned to Blanchard shares
    
    $
    
    
    
    $
    2,996Assumption of future obligations under gift annuities
    
    $
    
    
    
    $
    887Accretion of dividends on Series C convertible preferred stock
    
    $
    
    
    
    $
    791
 The accompanying notes are an integral part of these financial statements.
  6




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GRAND CANYON EDUCATION, INC.
Notes to Financial Statements
(In thousands, except share and per share data)
(Unaudited)
 1. Nature of Business
  2. Summary of Significant Accounting Policies
 Unaudited Interim Financial Information
  Public Offerings
  Revenue Recognition
  Derivatives and Hedging
        7




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GRAND CANYON EDUCATION, INC.
Notes to Financial Statements
(In thousands, except share and per share data)
(Unaudited)
 Fair Value of Financial Instruments
  Comprehensive Income
  Use of Estimates
  Segment Information
  Reclassifications
  Recent Accounting Pronouncements
    3. Spirit Transaction
    8




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GRAND CANYON EDUCATION, INC.
Notes to Financial Statements
(In thousands, except share and per share data)
(Unaudited)
 4. Earnings Per Share
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Denominator:Basic common shares outstanding
    
    
    44,783,079
    
    
    
    19,218,650
    
    
    
    45,032,008
    
    
    
    19,132,681Effect of dilutive preferred stock
    
    
    
    
    
    
    10,870,178
    
    
    
    
    
    
    
    10,870,178Effect of dilutive warrants and contingently
issuable common stock
    
    
    
    
    
    
    881,647
    
    
    
    
    
    
    
    2,094,197Effect of dilutive stock options and restricted stock
    
    
    316,076
    
    
    
    
    
    
    
    289,767Diluted common shares outstanding
    
    
    45,099,155
    
    
    
    30,970,475
    
    
    
    45,321,775
    
    
    
    32,097,056
 5. Valuation and Qualifying Accounts
 Balance at
    
    
    
    
    
    
    
    
    
    
    Balance atBeginning of
    
    
    Charged to
    
    
    
    
    
    
    End ofYear
    
    
    Expense
    
    
    Deductions(1)
    
    
    PeriodAllowance for doubtful accounts receivable:Nine months ended September 30, 2009
    
    $
    6,356
    
    
    
    9,931
    
    
    
    (11,055
    )
    
    $
    5,232Nine months ended September 30, 2008
    
    $
    12,158
    
    
    
    5,301
    
    
    
    (1,132
    )
    
    $
    16,327
 (1)
    
    Deductions represent accounts written off, net of recoveries. 6. Accrued Liabilities
  September 30,
    
    
    December 31,2009
    
    
    2008Accrued compensation and benefits
    
    $
    12,078
    
    
    $
    5,340Accrued interest
    
    
    91
    
    
    
    284Deferred rent
    
    
    260
    
    
    
    34Tax reserves, non-income tax related
    
    
    244
    
    
    
    710Tax reserves, income tax related
    
    
    642
    
    
    
    299Other accrued expenses
    
    
    5,043
    
    
    
    3,007$
    18,358
    
    
    $
    9,674
 7. Commitments and Contingencies
 Leases
  2009
    
    $
    8772010
    
    
    3,7712011
    
    
    3,4912012
    
    
    2,9962013
    
    
    2,846Thereafter
    
    
    13,055Total minimum payments
    
    $
    27,036
   9




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GRAND CANYON EDUCATION, INC.
Notes to Financial Statements
(In thousands, except share and per share data)
(Unaudited)
 Legal Matters
    qui tam qui tam qui tam qui tam
 qui tam
 qui tam
  Tax Reserves, Non-Income Tax Related
  8. Income Taxes
    10




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GRAND CANYON EDUCATION, INC.
Notes to Financial Statements
(In thousands, except share and per share data)
(Unaudited)
 9. Share-Based Compensation
   Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Instructional costs and services
    
    $
    271
    
    
    $
    
    
    
    $
    444
    
    
    $
    Selling and promotional
    
    
    13
    
    
    
    
    
    
    
    91
    
    
    
    General and administrative
    
    
    549
    
    
    
    
    
    
    
    1,854
    
    
    
    Stock-based compensation expense included in
operating expenses
    
    
    833
    
    
    
    
    
    
    
    2,389
    
    
    
    Tax effect of share-based compensation
    
    
    (334
    )
    
    
    
    
    
    
    (956
    )
    
    
    Share-based compensation expense, net of tax
    
    $
    499
    
    
    $
    
    
    
    $
    1,433
    
    
    $
    
 10. Regulatory
    
 Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
 The following discussion of our historical results of operations and our liquidity and capital
resources should be read in conjunction with the financial statements and related notes that appear
elsewhere in this report.
 Forward-Looking Statements
 Managements Discussion and Analysis of
Financial Condition and Results of Operations
  11




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
    
    our failure to comply with the extensive regulatory framework applicable to our
industry, including Title IV of the Higher Education Act and the regulations thereunder,
state laws and regulatory requirements, and accrediting commission requirements;
    
    the results of the ongoing investigation by the Department of Educations Office of
Inspector General and the pending qui tamaction regarding the manner in which we have
compensated our enrollment personnel, and possible remedial actions or other liability
resulting therefrom;
    
    the ability of our students to obtain federal Title IV funds, state financial aid,
and private financing;
    
    risks associated with changes in applicable federal and state laws and regulations
and accrediting commission standards;
    
    our ability to hire and train new, and develop and train existing, enrollment
counselors;
    
    the pace of growth of our enrollment;
    
    our ability to convert prospective students to enrolled students and to retain
active students;
    
    our success in updating and expanding the content of existing programs and
developing new programs in a cost-effective manner or on a timely basis;
    
    industry competition, including competition for qualified executives and other
personnel;
    
    risks associated with the competitive environment for marketing our programs;
    
    failure on our part to keep up with advances in technology that could enhance the
online experience for our students;
    
    the extent to which obligations under our loan agreement, including the need to
comply with restrictive and financial convenants and to pay principal and interest
payments, limits our ability to conduct our operations or seek new business
opportunities;
    
    our ability to manage future growth effectively;
    
    general adverse economic conditions or other developments that affect job prospects
in our core disciplines; and
    
    other factors discussed under the headings Risk Factors and Managements
Discussion and Analysis of Financial Condition and Results of Operations.
   12




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Overview
   Critical Accounting Policies and Use of Estimates
   September 30,2009
    
    
    2008# of Students
    
    
    % of Total
    
    
    # of Students
    
    
    % of TotalMasters or doctoral degree(1)
    
    
    15,202
    
    
    
    44.4
    %
    
    
    12,286
    
    
    
    56.0
    %Bachelors degree
    
    
    19,016
    
    
    
    55.6
    %
    
    
    9,671
    
    
    
    44.0
    %Total
    
    
    34,218
    
    
    
    100.0
    %
    
    
    21,957
    
    
    
    100.0
    %
 September 30,2009
    
    
    2008# of Students
    
    
    % of Total
    
    
    # of Students
    
    
    % of TotalOnline
    
    
    31,160
    
    
    
    91.1
    %
    
    
    19,287
    
    
    
    87.8
    %Ground(2)
    
    
    3,058
    
    
    
    8.9
    %
    
    
    2,670
    
    
    
    12.2
    %Total
    
    
    34,218
    
    
    
    100.0
    %
    
    
    21,957
    
    
    
    100.0
    %
 (1)
    
    Includes 315 students pursuing doctoral degrees at September 30, 2009.(2)
    
    Includes both our traditional on-campus ground students, as well as
our professional studies students. Factors affecting comparability
  Public company expenses
 Management fees and expenses
 Share-based and other executive compensation
  13




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##### Table of Contents



General and administrative expenses and tax expense
 License agreement
 Settlement with former owner
 Spirit transaction and related borrowings
 Estimated litigation loss
 Results of Operations
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net revenue
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Operating expensesInstructional cost and services
    
    
    35.5
    
    
    
    33.0
    
    
    
    33.5
    
    
    
    33.7Selling and promotional
    
    
    33.4
    
    
    
    47.2
    
    
    
    33.8
    
    
    
    42.0General and administrative
    
    
    12.9
    
    
    
    12.8
    
    
    
    14.1
    
    
    
    14.6Estimated litigation loss
    
    
    7.9
    
    
    
    0.0
    
    
    
    2.8
    
    
    
    0.0Royalty to former owner
    
    
    0.1
    
    
    
    0.3
    
    
    
    0.1
    
    
    
    1.5Total operating expenses
    
    
    89.9
    
    
    
    93.2
    
    
    
    84.4
    
    
    
    91.8Operating income
    
    
    10.1
    
    
    
    6.8
    
    
    
    15.6
    
    
    
    8.2Interest expense
    
    
    (0.4
    )
    
    
    (1.7
    )
    
    
    (0.7
    )
    
    
    (2.0
    )Interest income
    
    
    0.1
    
    
    
    0.2
    
    
    
    0.1
    
    
    
    0.5Income before income taxes
    
    
    9.8
    
    
    
    5.3
    
    
    
    15.0
    
    
    
    6.7Income tax expense
    
    
    4.5
    
    
    
    2.1
    
    
    
    6.2
    
    
    
    2.6Net income
    
    
    5.3
    
    
    
    3.2
    
    
    
    8.8
    
    
    
    4.1
 Three Months Ended September 30, 2009 Compared to Three Months Ended September 30, 2008
 Net revenue
 Instructional cost and services expenses
  14




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##### Table of Contents



Selling and promotional expenses
 General and administrative expenses
 Estimated litigation loss qui tam
 Royalty to former owner
 Interest expense
 Interest income
 Income tax expense (benefit) qui tam
 Net income
 Nine Months Ended September 30, 2009 Compared to Nine Months Ended September 30, 2008
 Net revenue
 Instructional cost and services expenses
  15




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##### Table of Contents



Selling and promotional expenses
 General and administrative expenses
 Estimated litigation loss.
 Royalty to former owner
 Interest expense
 Interest income
 Income tax expense qui tam
 Net income
 Seasonality
  Liquidity and Capital Resources
 Liquidity
   16




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##### Table of Contents



Cash Flows
 Operating Activities
 Investing Activities
 Financing Activities
 Contractual Obligations
  Payments Due by PeriodLess than
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    1 Year
    
    
    23 Years
    
    
    45 Years
    
    
    5 YearsLong term debt and notes payable(1)
    
    $
    26.6
    
    
    $
    0.5
    
    
    $
    4.2
    
    
    $
    3.6
    
    
    $
    18.3Capital lease obligations(1)
    
    
    1.8
    
    
    
    0.2
    
    
    
    1.5
    
    
    
    0.1
    
    
    
    0.0Purchase obligations(2)
    
    
    14.2
    
    
    
    9.3
    
    
    
    4.3
    
    
    
    0.4
    
    
    
    0.2Operating lease obligations
    
    
    27.0
    
    
    
    0.9
    
    
    
    7.3
    
    
    
    5.8
    
    
    
    13.0Total contractual obligations
    
    $
    69.6
    
    
    $
    10.9
    
    
    $
    17.3
    
    
    $
    9.9
    
    
    $
    31.5
 (1)
    
    The material change since December 31, 2008 is a result of the
acquisition of the land and buildings comprising our ground campus in
April 2009. In connection with this acquisition, we reduced our
capital lease obligations for the buildings that we had previously
leased and increased our debt obligations pursuant to the loan
agreement with a financial institution that we entered into for the
sole purpose of financing the acquisition of the campus land and
buildings.(2)
    
    The purchase obligation amounts include expected spending by period
under contracts that were in effect at September 30, 2009. Less than
one year represents expected expenditures from October 1, 2009 through
December 31, 2009.  Off-Balance Sheet Arrangements
  Non-GAAP Discussion
     17




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##### Table of Contents




    
    cash expenditures for capital expenditures or contractual commitments;
    
    changes in, or cash requirements for, our working capital requirements;
    
    interest expense, or the cash requirements necessary to service interest or
principal payments on our indebtedness;
    
    the cost or cash required to replace assets that are being depreciated or
amortized; and
    
    the impact on our reported results of earnings or charges resulting from (i)
royalties to our former owner, including amortization of royalties prepaid in connection
with our settlement, (ii) management fees and expenses that were payable until completion
of our initial public offering, (iii) estimated litigation loss, and (iv) share-based
compensation.
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(Unaudited, in thousands)Net income
    
    $
    3,491
    
    
    $
    1,252
    
    
    $
    16,209
    
    
    $
    4,476Plus: interest expense net of interest income
    
    
    223
    
    
    
    573
    
    
    
    1,091
    
    
    
    1,648Plus: income tax expense
    
    
    2,969
    
    
    
    841
    
    
    
    11,408
    
    
    
    2,868Plus: depreciation and amortization
    
    
    2,322
    
    
    
    1,407
    
    
    
    5,560
    
    
    
    3,676EBITDA
    
    
    9,005
    
    
    
    4,073
    
    
    
    34,268
    
    
    
    12,668Plus: royalty to former owner (a)
    
    
    74
    
    
    
    124
    
    
    
    222
    
    
    
    1,612Plus: management fees and expenses (b)
    
    
    
    
    
    
    77
    
    
    
    
    
    
    
    288Plus: estimated litigation loss (c)
    
    
    5,200
    
    
    
    
    
    
    
    5,200
    
    
    
    Plus: share-based compensation (d)
    
    
    862
    
    
    
    
    
    
    
    2,439
    
    
    
    Adjusted EBITDA
    
    $
    15,141
    
    
    $
    4,274
    
    
    $
    42,129
    
    
    $
    14,568
 (a)
    
    Reflects the royalty fee arrangement with our former owner in which we
agreed to pay a stated percentage of cash revenue generated by our
online programs. As a result of the settlement of a dispute with the
former owner, we are no longer obligated to pay this royalty, although
the settlement included a prepayment of future royalties that will be
amortized in 2009 and future periods.(b)
    
    Reflects management fees and expenses of $0.1 million and $0.3 million
for the three and nine months periods ended September 30, 2008 to the
general partner of the Endeavour Entities. The agreement relating to
this arrangement has been terminated.(c)
    
    Reflects an accrual of $5.2 million for an estimated litigation
settlement that has been reached in principle but is conditioned upon
obtaining governmental approval and finalizing settlement terms. See
Note 7  Commitments and Contingencies, and Part II, Item 1, Legal
Proceedings.(d)
    
    Reflects share-based compensation expense recorded in the first nine
months of 2009 related to share-based compensation for stock options
granted to employees and directors in connection with our initial
public offering and additional equity awards granted in subsequent
periods. 
 Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
 Impact of inflation.
 Market risk
  Interest rate risk
  18




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##### Table of Contents



Item 4.
    
    Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting.
  
 PART II  OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings
   qui tam qui tam qui tam
 qui tam qui
tam
 qui tam
   19




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##### Table of Contents



Item 1A.
    
    Risk Factors
  
 Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
 Recent Sales of Unregistered Securities
  Purchases of Equity Securities by the Issuer and Affiliated Purchasers
  
 Item 3.
    
    Defaults Upon Senior Securities
  
 Item 4.
    
    Submission of Matters to a Vote of Security Holders
  
 Item 5.
    
    Other Information
  
 Item 6.
    
    Exhibits
  Number
    
    Description
    
    Method of Filing3.1
    
    
    Amended and Restated Certificate of Incorporation.
    
    Incorporated by
reference to
Exhibit 3.1 to
Amendment No. 6 to
the Companys
Registration
Statement on Form
S-1 filed with the
SEC on November 12,
2008.3.2
    
    
    Amended and Restated Bylaws.
    
    Incorporated by
reference to
Exhibit 3.2 to
Amendment No. 6 to
the Companys
Registration
Statement on Form
S-1 filed with the
SEC on November 12,
2008.4.1
    
    
    Specimen of Stock Certificate.
    
    Incorporated by
reference to
Exhibit 4.1 to
Amendment No. 2 to
the Companys
Registration
Statement on Form
S-1 filed with the
SEC on September
29, 2008.4.2
    
    
    Amended and Restated Investor Rights Agreement,
dated September 17, 2008, by and among Grand
Canyon Education, Inc. and the other parties
named therein.
    
    Incorporated by
reference to
Exhibit 4.2 to
Amendment No. 2 to
the Companys
Registration
Statement on Form
S-1 filed with the
SEC on September
29, 2008.10.1
    
    
    Employment Agreement, dated September 16,
2009, by and between Grand Canyon Education, Inc.
and Joseph N. Mildenhall.
    
    Filed herewith.31.1
    
    
    Certification of Chief Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
    
    Filed herewith.31.2
    
    
    Certification of Chief Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
    
    Filed herewith.32.1
    
    
    Certification of Chief Executive Officer
pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. 
    
    Filed herewith.32.2
    
    
    Certification of Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. 
    
    Filed herewith.
 
    
    This certification is being furnished solely to accompany this report pursuant to 18 U.S.C.
Section 1350, and is not being filed for purposes of Section 18 of the Exchange Act, and is
not to be incorporated by reference into any filings of the Company, whether made before or
after the date hereof, regardless of any general incorporation language in such filing.  20




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##### Table of Contents



SIGNATURES
  GRAND CANYON EDUCATION, INC.Date: November 3, 2009
    By:
    /s/ Daniel E. BachusDaniel E. BachusChief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)  21




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##### Table of Contents



EXHIBIT INDEX
 Number
    
    Description
    
    Method of Filing3.1
    
    
    Amended and Restated Certificate of Incorporation.
    
    Incorporated by
reference to
Exhibit 3.1 to
Amendment No. 6 to
the Companys
Registration
Statement on Form
S-1 filed with the
SEC on November 12,
2008.3.2
    
    
    Amended and Restated Bylaws.
    
    Incorporated by
reference to
Exhibit 3.2 to
Amendment No. 6 to
the Companys
Registration
Statement on Form
S-1 filed with the
SEC on November 12,
2008.4.1
    
    
    Specimen of Stock Certificate.
    
    Incorporated by
reference to
Exhibit 4.1 to
Amendment No. 2 to
the Companys
Registration
Statement on Form
S-1 filed with the
SEC on September
29, 2008.4.2
    
    
    Amended and Restated Investor Rights Agreement,
dated September 17, 2008, by and among Grand
Canyon Education, Inc. and the other parties
named therein.
    
    Incorporated by
reference to
Exhibit 4.2 to
Amendment No. 2 to
the Companys
Registration
Statement on Form
S-1 filed with the
SEC on September
29, 2008.10.1
    
    
    Employment Agreement, dated September 16, 2009,
by and between Grand Canyon Education, Inc. and
Joseph N. Mildenhall.
    
    Filed herewith.31.1
    
    
    Certification of Chief Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
    
    Filed herewith.31.2
    
    
    Certification of Chief Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
    
    Filed herewith.32.1
    
    
    Certification of Chief Executive Officer
pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. 
    
    Filed herewith.32.2
    
    
    Certification of Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. 
    
    Filed herewith.
 
    
    This certification is being furnished solely to accompany this report pursuant to 18 U.S.C.
Section 1350, and is not being filed for purposes of Section 18 of the Exchange Act, and is
not to be incorporated by reference into any filings of the Company, whether made before or
after the date hereof, regardless of any general incorporation language in such filing.  22